Should You Pick Colgate-Palmolive Stock Over Monster Beverage After The Latter’s 2x Gains This Year?

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CL: Colgate Palmolive logo
CL
Colgate Palmolive

Given its better valuation, we believe that Colgate-Palmolive stock (NYSE: CL) is a better pick than Monster Beverage stock (NASDAQ: MNST). Although these companies have different businesses, we compare them because they are both part of the Consumer-defense sector and have a similar market capitalization of $55-$65 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. In the sections below, we discuss why we believe CL will offer higher returns than MNST in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Colgate-Palmolive vs. Monster BeverageWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

CL stock has seen little change, moving slightly from levels of $85 in early January 2021 to around $80 now. On the other hand, MNST stock has seen extremely strong gains of 120% from levels of $25 in early January 2021 to around $55 now. This compares with an increase of about 20% for the S&P 500 over this roughly 3-year period.

CL has had a poor run, with the stock losing value in each of the last three years. Returns for the stock were 0% in 2021, -8% in 2022, and -1% in 2023 (YTD). MNST is one of a handful of stocks that have increased their value in each of the last three years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 4% in 2021, 6% in 2022, and 114% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that CL underperformed the S&P in 2021 and 2023, while MNST underperformed the S&P in 2021.

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In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CL  and MNST face a similar situation as they did in 2021 and underperform the S&P over the next 12 months – or will they see a strong jump? We expect little growth in both stocks in the next three years, but CL will likely fare slightly better between the two.

1. Monster Beverage’s Revenue Growth Is Better

  • Monster Beverage’s revenue growth has been better, with a 14.6% average annual growth rate in the last three years, compared to 4.6% for Colgate-Palmolive.
  • Colgate-Palmolive is a leading manufacturer and distributor of household, health care, personal care, and veterinary products in global markets. It derives around 45% of its revenue from oral care products.
  • Its sales have risen based on pricing growth, partly offset by volume decline and forex headwinds.
  • Pet Nutrition has been the key growth driver for the company in the recent past. The company’s total revenue of $4.9 billion in Q3 2023 was up 10% y-o-y, led by a 21% growth in Pet Nutrition and an 8% rise in Oral, Personal, and Home Care segment sales. Pet Nutrition sales growth was driven by a 12% rise in pricing and a 9% growth in volume.
  • These trends are expected to continue in the near term.
  • Monster Beverage has benefited from a solid demand for its energy drinks. The company is also focused on new product launches and expansion in international markets. The pricing growth has also bolstered its overall top-line expansion.
  • Looking at the last twelve months, Monster Beverage’s 11% top-line growth fares better than 8% for Colgate-Palmolive.
  • Our Colgate-Palmolive Revenue Comparison and Monster Beverage Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, we expect Colgate-Palmolive’s sales to grow at a low single-digit average rate to over $20 billion in the next three years versus $19 billion in the last twelve months. In comparison, we expect Monster Beverage’s revenue to expand at an average annual growth rate of 9% to $8.7 billion in the next three years, compared to $6.7 billion in the last twelve months.

2. Monster Beverage Is More Profitable

  • Colgate-Palmolive’s reported operating margin slid from 22.7% in 2019 to 20.1% in 2022, while Monster Beverage’s operating margin fell from 33.4% to 25.1% over the same period, partly due to a rise in overall costs.
  • Looking at the last twelve months, Monster Beverage’s operating margin of 27.2% fares better than 19.7% for Colgate-Palmolive.
  • Our Colgate-Palmolive Operating Income Comparison and Monster Beverage Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Monster Beverage fares better with its 32% cash as a percentage of assets, much higher than 6% for Colgate-Palmolive. Also, Colgate-Palmolive’s debt as a percentage of equity is around 14%, while Monster Beverage is a debt-free company.

3. The Net of It All

  • We see that Monster Beverage has demonstrated better revenue growth, is more profitable, and has a better financial position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe CL stock will offer better returns in the next three years given that it is trading lower than its historical average, while the positives for Monster Beverage appear to be priced in, with its stock trading at a significantly higher valuation multiple compared to its historical average.
  • For perspective, Monster Beverage stock trades at 8.2x trailing revenues, much higher than its last five-year average of 4.9x, and Colgate-Palmolive stock trades at 3.4x trailing revenues versus the last five-year average of 3.9x.
  • Our Colgate-Palmolive (CL) Valuation Ratios Comparison and Monster Beverage (MNST) Valuation Ratios Comparison have more details.
  • Although we believe Colgate-Palmolive is a better pick over Monster, it’s not a great pick, with expected returns of about 10% in the next three years. There are better opportunities over CL stock. Our Better Bets Than CL Stock dashboard details S&P500 stocks that can offer better returns in the next three years.

While CL may outperform MNST stock in the next three years, it is helpful to see how Colgate-Palmolive’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 CL Return -1% -1% 19%
 MNST Return -2% 114% 389%
 S&P 500 Return 0% 19% 104%
 Trefis Reinforced Value Portfolio 1% 29% 565%

[1] Month-to-date and year-to-date as of 12/6/2023
[2] Cumulative total returns since the end of 2016

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